We had no rate cut today

The most important short-term problem that got us here was the refusal of the gang of 20 to borrow at the current Fed funds rate.

Today Feds did an emergency 75 bps cut. We need to watch the reaction. Will the banks borrow at 3.50% or not? I they will I will start to take some profit on my shorts. If not – just watch out, the only market hope up to now was that Feds will cut. So the Feds did, and now there is no hope out there, only reality

Update: the banks came only with $5 bln of bids with treasury collateral at the highest rate of 1.85%. This is well below the rate of 3.5%, so effectively we had no rate cut today. It doesn’t matter what’s the rate if nobody borrows. They are refusing to take money, Feds can’t push the string. I’m not covering any shorts

Sometime you’ll have to do a post on sovereign wealth fund because there seems to be much debate as to WHY they are willing to put up cash for various financial institutions, and SWF represent the last real backstop before K-Winter can truly take hold. Obfuscation thinks it’s because they are thinking long range and want to get good assets on the cheap, Russ and Lee think its because they are just dumb bagholders, and GSM and I think its because they are vying for more political control and influence down the road. What say you?

I think SWF look at the dollar quite different than we. For us it’s money, the only money we have. For them it’s some piece of paper that has only as much value as you can buy for it. You need to constantly spend a little bit of this paper just to test what it is worth. Can I buy a bit of Citi for it? Let’s try! Yahoo, it worked!

The same reason as why stock market is open every day – just to test what is worth what. So they will continue to buy, but the question is how often and how much.

Darth Toll Wrote:
“Sometime you’ll have to do a post on sovereign wealth fund because there seems to be much debate as to WHY they are willing to put up cash for various financial institutions”

Some of these SWF probably have substaintable US dollar reserves. If the sell the dollar, it will fall, and they lose money and probably endanger there export economy. The US gov’t won’t let them buy US assets (ie Dubai’s attempt to purchase US shipping ports). What do you do if your sitting on a mountain of US dollars that you have limited investment options, and the value of the dollar is sinking? I can’t say that investing in US financials is a smarter solution, but my gut feeling that this is the primary reason.

theroxylandr wrote:
“Update: the banks came only with $5 bln of bids with treasury collateral at the highest rate of 1.85%. This is well below the rate of 3.5%, so effectively we had no rate cut today.”

Fed is expected to cut another 50 bps next week. That would bring us to 3%, but that’s still well above the 1.85% asking rate. I think Congress will pass some monstrous stimulus package since no incumbent politician wants to deal with a recession during an election year. I think we’ll see at spending package above $250 Billion with in the next thirty days. Both Parties want this, so I think it will get done fairly quickly.

Looks like Investors are buying the rate cut as a fix. The Dow is now only off by 50 points. It will be interesting to see how the overseas markets react when they open tommorow.

FWIW, This US market downturn stall is likely just another pause. An enormous amount of capital is tied up in the global real estate bubble. Considering that the average Real Estate cycle is 5 to 7 years thats a long time before we start to see the light in the tunnel again. Because of the magnitude of this bubble, its likely to last longer than the previous downturns.

So basically what you guys are saying is that they have nothing better to do with this worthless paper so may as well try to buy something. Actually I can agree with this as well and this would be the 4th theory I’ve heard on the subject!

Also, it could be a combination of factors, and the only reason I really care is that I still perceive the SWF’s, with their large reserves, as a potential implosion backstop and the timing of the death-spiral has a lot to do with how long the SWF’s keep this up. I noticed that the bank of China is now reporting big writedowns on some of their “investments” so this adds pressure against the “buy somethin’ – buy anything” philosophy.

Re: the stimulus package. $800 for each taxpayer would be the $150B deal, so let’s be generous and say it’s a $300B deal when all is said and done. This is $1600 per taxpayer and my thinking is that this creates a small uptick in consumer spending but long term, not much of an impact. It seems like the real reason they want this package is to find a way to channel some $$$ into the credit card companies and banks without making it seem like that’s what they’re doing.

Think about it. If you were JSP, and you got a check for $1600, you might pay down some credit cards or maybe make the mortgage payment, and this gives some money to the banks. Even if you just bought gas and food, you wouldn’t be piling up more bad debt onto the credit cards during this time, so this could be viewed as a breather for the credit card companies.

“This is $1600 per taxpayer and my thinking is that this creates a small uptick in consumer spending but long term, not much of an impact.”

I agree, but I suspect that the investors will react postively for a period of time. I think the market is full of poly-anna’s, and these investors will see the bright side. The discussion among co-workers today is that the sell off was an excellent “buying” opportunately, on the theory, no matter what, stock will go higher in the future. I think this sentiment is held by small retail investors as well as fund managers.